Overview
A short straddle sells both the at-the-money call and the at-the-money put. You collect a large combined premium and profit when the underlying finishes near the strike, letting time decay grind both options to zero.
This is a high-conviction range view with serious tail risk: a big move in either direction produces escalating, theoretically unlimited losses. It is the most aggressive of the neutral structures and demands strict risk control.
How it’s built
Sell 1 at-the-money call and sell 1 at-the-money put of the same strike and expiry. The total premium collected is the maximum profit.
| Action | Option | Strike | Premium | Role |
|---|---|---|---|---|
| Sell | Call (CE) | 24,000 | 180 | Sell ATM call |
| Sell | Put (PE) | 24,000 | 170 | Sell ATM put |
Payoff at expiry
The diagram is computed from the legs above on an illustrative NIFTY 50 snapshot — spot 24,000, one lot of 75.
Worked example — NIFTY 50
With NIFTY pinned at 24,000 ahead of a quiet stretch, you sell the 24,000 call for 180 and the 24,000 put for 170 — a combined credit of 350 points (₹26,250 per lot), which is also your maximum profit.
You keep the most if NIFTY expires exactly at 24,000. The position only breaks even at 23,650 or 24,350; beyond those the loss grows one-for-one with the move, with no cap. Margins are heavy and active management is essential.
At expiry
| If the market… | Outcome |
|---|---|
| NIFTY expires at 24,000 | Maximum profit — both legs expire worthless |
| NIFTY at 23,650 or 24,350 | Breakeven on either side |
| NIFTY trends far either way | Escalating, uncapped loss |
Greeks & behaviour
When to use it
- You strongly expect a quiet, range-bound market into expiry.
- Implied volatility is rich and you expect it to contract.
- You can actively monitor and have a firm stop-loss plan.
Risks & caveats
- Theoretically unlimited loss — a single gap can dwarf many winning trades.
- High margin and exposure to overnight and event risk.
- Volatility expansion hurts even before price moves much.
Key takeaways
- Maximum premium capture for a pinpoint range view.
- Unlimited risk — only for experienced, risk-managed traders.
- Define a stop and size small; one outsized move can be devastating.
Test this on live data
Load the Short Straddle preset in the Strategy Builder to see real strikes, premiums and a live payoff graph.
Educational content only — not investment advice or a recommendation. All strikes, premiums and figures are illustrative and do not reflect live market quotes. Options carry significant risk; consult a registered adviser before trading.